ABSTRACT
From Solow's treatment of technical change as an unexplained residual to the concept of national innovation system, as it has been briefly introduced in Chapter 1, there has been an enormous amount of literature covering many different facets of the innovation process. In an early classic study, Solow (1956) addressed the issue of what determines growth. He set out to study what fraction of the growth of output could be attributed to growth of accumulated capital and what fraction to the increase in the labour employed. Perhaps the most surprising fact was that a great deal of growth remained unexplained by the supply of these inputs (the so-called ‘Solow residual’). Technicalities aside, this essentially meant that a change occurred which allowed the creation of more value from a given set of resources. This change was in fact a series of changes, of discoveries of better ways to produce; it was a process of learning how to do things differently, which was the result of searching, questioning and probing. In turn, these activities were the result of ‘a complicated set of market and non-market institutions that constitute what has been called a National Innovation System’ (Romer, 1993, p. 345).
